Why Technology Giants’ Stocks Suffered Despite Strong Quarterly Results?

This article was written exclusively for Investing.com.

We had two weeks full of income reports; Netflix (NASDAQ :), Apple (NASDAQ :), Advanced Micro Devices (NASDAQ :), and Facebook (NASDAQ 🙂 have published their final quarter results. This may be a theme common to most companies. Despite announcing excellent results, they had a hard time rallying.

This is another thing they share; All of these names were among the biggest winners of 2020 and were part of the homestay period, but now these transactions may be over. For some names, there were signs that conference calls 2021 could be more difficult. At the same time, a period of stagnation or regression may follow the rapid growth experienced by these stocks.

Apple Daily Chart

Troubles with Comparable Figures

After the profit and income announcements that came well above the expectations, it also experienced a decline to the surprise of investors. However, conference calls revealed the reason behind this poor performance. Apple stated that year-over-year growth in the Wearable Devices, Home Accessories and Accessories categories will slow compared to the fiscal first quarter. The company also said the services division could face difficulties with comparable data when it released March quarter results. On the other hand, Facebook signaled that investors may see a steady or average growth in advertising revenues in the first half of the year, and that growth rates may weaken in the second half.

More clearly, do not be surprised if growth in the upcoming period fails to meet the great expectations priced in stocks.

No Margin Growth

AMD also surpassed expectations for the last quarter and gave an equally strong direction, although the shares were down nearly 8%. Despite the strong demand for its chips, the company was unable to improve its margins compared to the same period last year. Failure to improve margins in an environment of strong revenue growth could mean that the company cannot charge higher fees for its chips, or that future profit estimates need to be adjusted downward.

Even Netflix, whose share gained about 20% after strong results, fell victim to this trend. The company’s net subscriber growth was well above expectations and a positive outlook for free cash flow was presented. However, the company’s stock has lost almost all of its gains since January 20, and at one point fell by as much as 13.5%.

Is It the End?

The market seems to be sending a message that higher than expected results are not enough to raise these stocks.

In fact, this is the second time in a row. All four stocks have failed to show a significant rise since the beginning of September.

The message of the market is not entirely clear. Still, it seems to indicate that companies are unlikely to continue the high profits and revenue growth they had achieved since the outbreak. This may translate into slower growth rates in the upcoming period, making it difficult for investors to justify current valuations of these shares.

For example, Apple is trading at about 30 times its financial 2023 profit forecast of $ 4.67. This is the highest price-earnings fold since 2007, and it’s also almost twice the average price-earnings ratio for this period.

Apple Price-Earnings Ratio

Apple Price-Earnings Ratio

The recent decline in the stocks of some of these technology giants may be a signal that the market is experiencing a shift. This shift could mean a decrease in comparable figures and perhaps in prices.

Explanation: Michael Kramer and Mott Capital Management clients own shares of Apple. Mott Capital Management, LLC is a registered investment advisory. The information presented here is for informational purposes only and is not an offer or incentive to buy or sell any securities, investment or investment strategies. Investments involve risk and are not guaranteed unless otherwise stated. Always consult with a qualified financial advisor and / or a financial adviser before implementing any strategy reviewed here. Upon request, the company will provide a list of all recommendations made in the last twelve months. Past performance is not an indicator of future results.

Check Also

Bulls take control of Bitcoin options market

A total of 42,850 Bitcoin (BTC) options contracts ($1.7 billion) will expire on Friday, July …

Leave a Reply

Your email address will not be published. Required fields are marked *